This year is shaping up to be a significant one for SacOil (LON:SAC). In Nigeria, in particular, the news flow should ramp up now that the finances are in place that will allow the exploration and appraisal of one of two highly prospective oil licences there.
In April the group announced it had posted a US$25 million performance bond, which allows it to start preliminary work on the OPL233 concession in the Niger Delta.
The immediate plan is to carry out 100 square kilometres of state-of-the-art ocean bottom cable 3D Ocean Bottom Cabling seismic survey (OBC), which is suited to the shallow waters of the Niger Delta.
The US$10 million cash collateral element of the US$25 million performance bond, provided by Ecobank Nigeria, means is the first phase of working including the OBC is fully funded.
OPL233 is a discovery with one, partially tested well, a contingent resource of 19 million barrels, and some very poor 2D seismic. But it is adjacent to the Chevron-operated 600 million barrel Apoi field, which produces some 100,000 barrels of oil a day.
The hope is the OBC will not only identify a number of drill leads, but it will also help determine the potential of the block.
The current reserve estimate is based on a 900-metre radial area very close to the Olobia-1 well, which represents a fraction of the block’s gross acreage.
Olobia-1 hit around 100 feet of net pay oil and 90 feet of gas when it was originally drilled in 1986. While the well was logged it was never flow tested.
The 126 square kilometre block is in a very good neighbourhood with Apoi right on its doorstep. In fact there is a suspicion, unsupported at this point, that the Apoi oil system strays into OPL 233.
The company owns 20 per cent of OPL233, as does Energy Equity Resources (“EER”), and the pair will fund exploration and development of the concession.
The majority is held by NIGDEL, the company’s local partner.
The OBC 3D survey is likely to get underway in the summer and is expected to take around three months to complete and interpret.
Data interpretation and preparations for an appraisal well are projected to take up the remainder of the year.
The data will also contribute to an updated competent person's report to be prepared by AGR Tracs.
An appraisal well is likely to be spudded in the final weeks of 2012, or early 2013, with SacOil expected to share the US$15 million costs with EER.
Success with the drill bit would set the scene for a six month period of trial oil production.
Untaxed, the oil has the potential to generate as much as US$50 million of revenues if the well flows at the same rate as others in the immediate vicinity.
It would also provide the group with the funds to develop OPL281, an onshore block in the Delta region that has a gross resource of 99.2 million barrels and two untested wells drilled in 1967 and 1970 respectively.
The local partner is Transcorp, while SacOil and EER once again have 20 per cent each.
It differs from 233 in having 3D data, which is due to be reprocessed on the third quarter – a programme likely to continue well into the first quarter of next year. An appraisal well is scheduled for late 2013.
Outside Nigeria, SacOil has an interest in Block III in the Democratic Republic of Congo, where Total has farmed in for 66.66 per cent. This leaves SacOil with an effective 12.5 per cent, with the DRC government and DIG Oil holding 15 per cent and 5.84 per cent respectively.
The French major has committed to spend the work programme minimum of US$70 million on exploration and up to two wells, which means SacOil doesn’t have to make a contribution until the final investment decision phase, or FID.
Block III has piqued the interest of Total because it is “on-trend” with some significant Lake Albert discoveries over the border in Uganda.
Chief executive Robin Vela said the company’s current cash resources are sufficient to meet its immediate needs, though it may have to raise funds to finance OPL233 appraisal well.
It does, however, have a U$25 million equity drawdown facility.
Progress to date has been steady as it has worked towards this critical inflexion point. However it has received no recognition for this.
“The stock market has been horrendous,” Vela admitted.
“Not just for us but small-caps across the board. Whether you are mining, whether you are oil and gas it has just been a terrible time to be in the markets.
“Operationally we have made progress in bolstering our team and moving our assets forward. But it is only just the start of the process. We are looking to make material progress in the next 12 months.”